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NEW YORK – Seth Golden, the former manager of the Target Corp store, is betting on volatility again months after losing millions of dollars.
Mr. Golden, who claims that bets on the market calm have brought him millions over the last six years, is among the investors who have maintained trading in complex financial products related to the Cboe volatility index. VIX – Wall Street's "Finger of Fear" – these products have exploded.
"The majority of the" thieves vendors "were not damaged in February. These are the Johnny-come-latelies and people who should not have experienced volatility in the beginning, "said Golden.
This market is once again at the center of concern after a further rapid fall in stock markets, which pushed VIX to 29, after reaching less than 12 years old in early October. Given the gradual recovery of transactions, volatility will not last.
While many investors had the intelligence, others continued to arrive and, between March and September, more than $ 1.2 billion was invested in US-based exchange-traded volatility products, according to Reuters calculations based on data from FactSet Research Systems Inc., which tracks investments.
This compares to $ 1.7 billion the month before the beginning of February "Volmaggedon" when the shares sold off briefly due to inflation fears, the VIX climbed to 50 on February 6 from 18 the previous day, and some investors have lost more than 90% of their capital. investment.
Golden, which gained momentum after the New York Times profiled it in 2017 and now runs a website offering tips to traders, said it had already largely recovered its losses. February by continually borrowing VIX traded products, selling and buying them. back when the price drops. Reuters has not been able to independently verify its accounting.
Golden said he had cashed in some of his profits before the latest spike in volatility and was now waiting for the market to turn around.
"These are the days for which I live," he said during the liquidation of the market this week. [.N]
The February accident sparked a debate over whether the VIX index and related products were subject to manipulation and led to dozens of lawsuits and ongoing investigations by regulators US.
LESS LEVER
Since then, the Cboe Exchange (CBOE.Z), owner of the VIX Index, and the issuers of some of the associated products have made changes that they believe should make the market less subject to violent and difficult fluctuations to anticipate.
The Exchange changed its bid to determine the price of the VIX Futures in order to increase liquidity, while the limited partners of some of the volatility products modified them to reduce their leverage.
For example, ProShare Capital Management LLC, the backbone of widely used ProShares brand flight products, restructured a product to target fewer movements in response to market changes, losing 0.5% instead of 1% , tracks increases by 1 percent.
Until now, these steps seem to have worked.
The short-term ProShares Short VIX Futures ETF of $ 370 million (SVXY.P), which fell 80% in a single day in February, lost 8.3% Wednesday, lost 4.6% Thursday and rebounded 3% Friday morning.
Earlier this month, Barclays Plc analysts, who said the February plunge was "technical in nature," wrote that a strong US economy and so far limited economic impact of trade conflicts, declining currencies emerging markets and the upcoming congressional elections should support trade in the near term.
This week, however, they said their views had changed given the increased risk of errors in Federal Reserve policy and the increased investor focus on the effects of a trade war between the states. United States and China.
"We expect volatility to remain high in the near term and we do not recommend buying this plunge," they wrote.
"The difference is that this time we can signal real catalysts," said one of the authors, Maneesh Deshpande, to Reuters.
As investors trade VIX futures to protect themselves from market downturns and turbulence, these derivatives tend to lose value in constantly rising markets as demand for this protection declines. Inverse-Vol launched and listed on the stock market after the 2007-2009 financial crisis allowed investors to take advantage of this situation and make profits during prolonged periods of market calm.
Originally designed as a sophisticated hedging tool for professional investors to help them manage their daily exposure to the market, reverse volatility products have become popular with small investors when publicly traded products have new life as a lucrative bet on the calm of the market.
Earnings of nearly 600% over two years, up to February, put products on several top-performing investment lists and were the subject of lively discussions on social networks and financial sites.
"The pros, many were back a week or two after February," said Russell Rhoads, head of derivatives research at TABB Group LLC.
"There are a lot of people trying to choose stocks. The major hedge funds all operate in the same way, and the volatility space has paved the way for people willing to do the work to find a new way to speculate in the market. "
Some analysts have blamed the severity of the collapse for excessive debt and excessive reliance on ill-prepared individual investors.
"It's more or less a substitute for going to Las Vegas. You can do it from your home office, "said Robert Whaley, a professor at Vanderbilt University, who developed VIX.
Whaley views VIX as a market indicator, but fears that volatility-traded products pose a risk to retail investors.
There are no data on the number of retail investors in commerce, but the available data suggest that they still play an important role in the market.
Institutions required to report certain assets, typically traders and money managers overseeing more than $ 100 million, account for between 3% and 62% of the volatility assets of US exchange traded funds, the balance being held by the United States. those who do not file this information, including: smaller funds and small investors, show Refinitiv data.
Stuart Barton, Managing Partner at Invest in Vol LLC, an investment advisor who uses the products, said that these investors are taking big risks again.
"The measures taken by the surviving products to reduce their indebtedness have been good, but that's only half the story," he said. "People just take the position twice."
Reuters
Trevor Hunnicutt report; Edited by Jennifer Ablan and Tomasz Janowski
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